2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free...

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2. Black Sheep Corporations 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%,

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Answer 1

Answer #1

Nominal Yield for a Treasury Bond

Nominal Yield_T = Real risk free rate + Inflation Premium + Maturity Risk Premium

Nominal Yield for a Corporate Bond

Nominal Yield_C = Real risk free rate + Inflation Premium + Maturity Risk Premium + Default Risk Premium + Liquidity premium

Nominal Yield_C = Nominal Yield_T + Default Risk Premium + Liquidity premium

7% = 5.15% + Default risk premium + 0.75%

Default risk premium = 1.10%

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Answer 2

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2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free...

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Add Answer to: 2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free...

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2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free...